Money makes the world go round, and you might be wondering, “How am I doing financially?” Figuring out where you stand financially helps you plan for your retirement, major purchases, debt management, and more. Giving yourself a regular financial check-up is the best way to see if you're meeting your financial goals.
This blog will help you understand what financial stability looks like, conduct your own financial health check, and compare your situation to others in your age group. This check-up will help assess your financial health, highlighting strengths and areas for improvement, whether you're new to money management or refining your strategy.
What Is a Financial Wellness Check Up?
A financial wellness check up is a thorough review of your financial health, similar to a routine medical exam. The goal is to assess your financial position and pinpoint areas for improvement. It assesses key aspects of your finances, including:
- income
- expenses
- savings
- investments
- debts
- credit score
By conducting a financial health check, you can ensure you're on track to meet your financial goals. A financial check-up helps you make informed decisions and take proactive steps toward achieving financial stability and peace of mind.
How Do I Know If I Am Financially Stable?
Being financially stable means different things to different people. Generally speaking, being financially stable means having enough money to cover your daily needs and unexpected expenses without stress. You should feel confident about your financial situation, whether you're paying bills, saving for the future, or handling emergencies.
These are the typical hallmarks of being financially stable:
- You have a steady source of income. Your income covers expenses and allows for savings.
- You have manageable debt. Your debt is manageable, and payments fit comfortably within your budget.
- You have an emergency fund: It’s advisable to have savings to cover three to six months of expenses for emergencies like job loss or medical issues.
- You have enough savings for your future goals. You're saving for future goals like retirement, education, a home, and an emergency fund.
- You have a good credit score. A good credit score indicates responsible debt management, which is essential for securing favorable loan terms.
How to Conduct Your Financial Health Check
It’s important to be truthful about your financial situation during a check-up. Only by being honest can you make practical changes to how you are doing financially. Also, keeping your financial documents organized is always a good idea so you can easily access them during a regular financial check-up.
Doing a financial health check annually or whenever your financial situation changes significantly is generally a good idea. Follow these steps to see how you're doing financially:
1. List Your Income and Expenses
Start your financial check-up by writing down how much money you earn each month from all sources. Don’t just think about your salary. Include all forms of income, such as benefits, and passive income, such as rental. Then, detail all expenses, such as mortgage payments, groceries, and utilities.
2. Review Your Savings and Investments
Check your financial accounts to assess your current savings position. This includes looking at your bank accounts, investment portfolios, retirement accounts, and any other financial vehicles you've established. It's crucial to have a clear understanding of your total savings and how each account is performing. Ensure you're consistently contributing to these savings vehicles.
3. Look at How You Handle Your Debt
Write down all your debts, including credit card balances, loans, and mortgages. Review the interest rates and your monthly payments.
How is your debt repayment process progressing? Aim to pay off high-interest debts as quickly as possible. Compare interest rates on all loans and credit cards, and explore refinancing or switching to lower-rate options.
4. Check Your Credit Health
Obtain a copy of your credit report from a reputable credit bureau. Check for errors and report them promptly. Credit scores aren't free but can be obtained for a fee or through some banks. A higher score can help you get better rates on loans and credit cards.
5. Set Your Financial Goals
Think critically about your financial aspirations and objectives, both for the immediate future and years down the line. Establish well-defined, realistic goals that align with your personal circumstances and ambitions. Don't just dream vaguely; pinpoint specific targets you can actively work towards.
For instance, envision yourself saving diligently for that dream vacation you've always wanted, systematically tackling and removing your outstanding debts, or steadily building a comfortable retirement nest egg for your golden years. These tangible objectives will serve as powerful motivators for how you do financially.
How Am I Doing Financially for My Age?
When it comes to money, people are always comparing themselves to others. While it may be helpful to have a benchmark, remember that your financial situation is unique. How you are doing financially, compared to your peers, depends on whether you have the same goals and financial obligations.
With inflation, rising cost of living, and other variables out of control, what were once thought of a normal benchmarks are changing.
Are you saving for a house, preparing for retirement, or simply maintaining a comfortable lifestyle? These variables vary based on your needs. Instead of wondering how you're doing financially for your age, focus on your unique circumstances and goals:
- Set realistic financial goals based on your personal circumstances, not just your age.
- Plan for major life events like marriage, home buying, or starting a family, and assess their financial impact.
- Regularly update financial goals to reflect current needs and future aspirations as you age.
Keep Your Financial Progress from Flatlining
A financial check-up will help you to see where you stand, but setting a plan of action often requires an objective perspective and expertise. The experts at Asset Preservation Wealth and Tax take a holistic approach to financial advice and planning. We look at the bigger picture to serve our clients as fiduciaries. From tax preparation to estate planning, we are a one-stop shop for all your financial needs.
Get a free complimentary portfolio review today!
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
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